India has long operated a `silo system' where the financial industry was sought to be broken up into vertical silos associated with regulatory agencies. The word `regulation' is relatively little understood in India. Instead, there has been a central planning notion of comprehensive `control' of a given financial firm vesting in a given regulator, so that a somewhat feudal arrangement prevails in each silo.
This is not how an efficient financial system works. As Percy Mistry's report says, in the future, government needs to to reorganise itself to fit the regulatory requirements of a sophisticated financial system, instead of trying to force financial firms to reorganise themselves to fit the almost accidental regulatory architecture that prevails in India today.
In recent years, many changes in finance have hinged on breaking the strictures of this silo system. Two success stories that come to mind include ETFs on gold and currency futures.
In this setting, we have a big new development in across-silo thinking: an order by SEBI against insurance companies selling mutual-fund-like products without being regulated as mutual funds are. [pdf]
We need the Financial Stability and Development Council (FSDC) yesterday.